Groupe Ariel Essay

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APRIL 19, 2010


Groupe Ariel S.A.: Parity Conditions and Cross-Border Valuation
On June 23, 2008, a Monday morning, Arnaud Martin arrived at his office in Groupe Ariel’s corporate headquarters in Mulhouse, France. The previous week, Martin had requested additional financial information about an investment proposal from Ariel-Mexico, a wholly owned subsidiary that operated a manufacturing facility and a regional sales office in Monterrey, Mexico. The information had arrived late Friday—too late for Martin to analyze—and was waiting for him Monday morning. As a financial analyst for a global manufacturer of printing and imaging equipment, Martin examined many cross-border projects, particularly
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Ariel’s low profitability was typical of the industry in 2008; all of its competitors were similarly affected by the recession. One bright spot in the company’s outlook, however, was its growth in several emerging markets, including the so-called BRIC economies of Brazil, Russia, India, and China. Ariel had been a global firm for years, but did not move aggressively into emerging markets until 2003–2004. This was later than some of its competitors. On one hand, this meant Ariel’s market share lagged in some markets. On the other hand, Ariel avoided some of its competitors’ earlier mistakes. The company’s international operations were conducted primarily through a large network of subsidiaries, which operated mostly medium-sized regional factories in which printers, copiers and other products were manufactured to suit local tastes. Ariel conducted business in 28 countries around the world, with operations consisting of manufacturing facilities, small research labs, as well as sales and marketing subsidiaries. In 2008, subsidiaries outside the European Union recorded about half of Ariel’s sales and generated slightly less than 40% of pretax income. Ariel competed in a relatively mature market, and its chief competitors were both established multinational companies—some of which had developed their consulting and other after-sales services businesses to a higher level than had Ariel—as well as smaller players
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